Monday, June 02, 2008
Jason Mendleson over at Foundry Partners (he's the guy on the far right) has an excellent post up on his frustration with venture lawyers.
His analysis is better given that, before he became a VC, he was a lawyer.
His two primary points are cost and execution.
The first point on cost resonated strongly. He compared the average VC deal in 1998 to 2008 and concluded that the amount of the deal had gone up about 11%. The salary of a starting venture lawyer, during that same time, went up 114%.
We've felt the pain. Before we call, or even email, our lawyer, we ask ourselves long and hard: do we really need this? The minimum billing for a startup lawyer is 1/6th of an hour. 10 minutes. At the low end, that's $50.
Fifty bucks to send an email asking them to change something on our yearly Delaware filing paperwork. Minimum. More likely $150. They have to read the email (10 min charge- 1 minute of reading time), go do something else, come back and make the changes to the document (10 min charge... 2 minutes of work), go do something else, then come back and put the paperwork in an envelop (10 minutes charge- 1 minute of work).
God help you if you want an actual contract reviewed, which comes to the second point re: execution.
We had a large contract with a big company that our then CEO 'ran by the lawyers'. $25,000.00 later, we had a passable contract. Chances are it would have been more if our CEO at the time hadn't left the company. To this day I'm not clear how we spent that much money on a simple contract with pretty clear terms to start with.
Even at $500 an hour, that's 50 hours. I'm wondering if that's really possible. Does it really take 50 billable hours of a partners time to 'review' a contract?
There's definitely an execution problem there. I have no idea if it was on our side or the law firms, but at $500 an hour, it's pretty easy to lay at least part of the blame on the law firms doorstep.
So, I couldn't agree more with Jason's take on venture lawyers.
I do know this: If I wasn't paying $500 an hour for the advice, I'd ask for alot more of it, and I'd count the lawyer as more of a partner in my business than a hideously expensive last resort 'check' to keep us from getting nuked when dealing with a big company or a litigious partner.
It's a little like health insurance costs: You skip getting the health insurance because it's just too damned expensive and pray you don't get sick.